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Economic impact of COVID-19 – The hard lessons

Economic impact of COVID-19 – The hard lessons

The human and economic devastation caused by the global COVID-19 pandemic is unprecedented and difficult to imagine. It has affected more than 5 million people all over the world and already killed more than 339K people. In the US alone, more than 96K people have died.

The sufferings and hardships of people the world over continue unabated, even as its full impact is being assessed, understood and assimilated into our collective ecosystem. But the priority now, and rightly so, is the full containment and the simultaneous development of appropriate vaccine and medications to prevent the spread of this deadly disease.

The economic impact of the deadly disease has been jaw dropping. According to data released by the US Bureau of Economic Analysis (BEA), the US GDP shrank by a mind boggling annual rate of 4.8% in the first quarter of this year.  Over 38 million people have filed for unemployment claims and the numbers are likely to only go up.

Travel and hospitality industry – Airlines, hotels, restaurants, rental car industry are among the worst hit sectors of the economy. Not to mention the travails of millions of small businesses that live on daily incomes. Many big name retailers have already filed for bankruptcy with multiple store closures.

In Europe the scenario is no better, with Italy, Spain, France and UK facing the brunt and suffering huge losses. The European Commission expects the EU economy to shrink by 7.5% in 2020 — far worse than the 2009 contraction of around 4.5%.

In Asia, China, Japan and India too have faced severe economic reversals. The plight of other smaller economies around the world has been equally dismal. So, all in all, the deadly virus that emanated from Wuhan in China, has inflicted an exorbitant toll on human civilization, confining them in their own homes in what is being euphemistically called home shelter.

The silver lining though, is that after a prolonged lockdown, the US and other governments are planning to reopen their respective economies in a phased manner. This will breathe new life into global trade and economy. But people will still be required to take precautions and wear masks when venturing out, something experts believe we may have to for a long time to come.

Even as the economies are opening up, it may not be business as usual, at least in the near term. Tourism, travel and hospitality industries may continue to face headwinds. Many people will continue to play safe and may not be inclined to travel unless absolutely required. This will significantly delay the recovery of these sectors to pre-pandemic levels. This in turn could adversely impact the broader economy. This may not bring cheer to economies that depend heavily on these sectors for sustenance.

According to the European Parliament, travel, tourism and businesses that depend on them contributed 10.3% of EU’s GDP and employed 11.7% or approximately 27.3 million workers in 2018. Given the dependence on travel and tourism, this may not be good news for Europe.

In the USA, travel and tourism industry’s contribution to the GDP in 2018 was 7.8% at US$ 1.87 trillion. However, the sector‘s share of GDP has gradually declined from 1999 to 2018. In the case of US, while the impact will still be significant, it may not be able to negate a swift recovery powered by federal financial support such as the CARES Act etc. From this perspective, the impact to US economy may not be as profound as felt by Europe.

In China, per data published by, revenue from tourism accounted for about 11% of GDP in 2018 amounting to US$ 836 billion (1 CNY = 0.14 USD, May 2020). Bulk of the travelers came from Hong Kong, Macau, Taiwan and South Korea. The post pandemic travel to China will be greatly reduced thus impacting China’s overall GDP resurgence.

According to the World Travel and Tourism, the industry generated US$ 240 billion or 9.2% of India’s GDP in 2018 and supported 42.673 million jobs which is 8.1% of its total employment. While the impact to a post pandemic economy in India will be significant, it would be significantly less than that experienced by China and European Union.

It will be fair to assume that the speed and depth of post pandemic recovery will be different in different countries.  In the case of China, it may be a saga of struggle against multiple challenges. Apart from a weak travel and tourism sector, the country faces potential threat of flight of capital and relocation of key industries to other ‘friendlier’ countries. Souring trade relations with its biggest trading partner, the US, will also be a key factor that could swiftly turn into a tipping point.

Whichever way we look at it, the expected slow recovery of travel and tourism industries will   significantly dampen global economic recovery, albeit, the impact on some counties will be more profound than others.

This piece is certainly not a pontification on the health of the global economy based on the fortunes of a single sector of the broader economy. That would be the equivalent of reading the crystal ball. But it nevertheless gives us credible insights into what may be in store for us on the path to global recovery. More importantly, this piece is also not an elegy to a woeful future ahead for us.

But most definitely, there are hard lessons for the world to be learnt. The pandemic, all said and done, appears to be an equal opportunity destroyer of economies and has forced a global reordering of economic fortunes of human civilization as we know and understand it today.

Most leading economies have been bought to their knees so quickly and so unexpectedly that most of us don’t seem to have understood what has hit us, economically speaking. Who knows, it is probable that the pandemic is an early indicator of nature’s way of hitting the reset button – to a global economic order that seems to propitiate an unending consumptive appetite.

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Posted by on May 23, 2020 in Uncategorized


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2019 Elections – Is Tamil Nadu becoming the next Kashmir?

Will Modi & Amit Shah clean up internal security mess?

The results of the 2019 general elections came as a surprise to no one. But what really surprised many was the scale of Bhartiya Janata Party’s (BJP) victory. The BJP won 303 seats, while its allies took another 50 seats giving it a commanding majority to form the government on its own. The key factors for the victory have been a scam-free five years where the government had single mindedly focused on executing numerous poverty alleviation and infrastructure developmental programs. The benefits that flowed were there for all to see and there was no going back.

The 2019 general election has thrown up some key facets of an emerging political ecosystem in India. This is refreshing as well as disturbing. It is refreshing because the mandate points to the yearning of the people for a strong central government.

It is also simultaneously disturbing because this election witnessed an unprecedented political violence that resulted in the death of many political workers. The violence has continued in some states even after the elections.

In his victory speech Prime Minister Modi talked about the decimation of fake political ideologies and the emergence of a fresh mindset in the people of India. The yearning for a strong and stable federal government was too loud and clear. In India’s context, that was antithetical to most political parties who for decades believed in dividing to conquer and by definition a weak central government.

The defeat, as expected, has resulted in the disarray of the opposition parties. But the spike in political violence and secessionist rhetoric in West Bengal and Tamil Nadu is worrisome. West Bengal Chief Minister Mamata Banerjee’s open defiance of the Central government and the scuttling of local political freedom by arresting supporters of the BJP in the state is a case in point.

Given the known proclivity of many of these political parties to fringe and extremist entities that are inimical to the Indian union, it is not difficult to see how easily the 2019 election drubbing could transmogrifying into violence against the party workers of the BJP.

As Prime Minister Modi settles down in his second term in office, this emerging threat to internal stability stemming from the country’s political opposition will undoubtedly be dominating his attention.

It is true that the Kashmir and Maoists problems have already been dealt with firmly by the Modi government in the last five years. The security forces have gradually but surely gained the upper hand and it is only a matter of time before these terrorists will be wiped out and peace restored.

However, for the security establishment, it appears to be a game of whack-a-mole. Just as terror is wiped out in one area, it springs its ugly head elsewhere. But this time the concoction may be deadlier since it is the enemy within.

Kerala is the other southern state that is expected to keep PM Modi’s team busy. The surge of radicalization in this state as seen by increasing numbers of ISIS recruits as well as political killings in the recent past show that the state may already be on a slippery slope. The communist government’s opposition to traditional Hindu beliefs in the customs of Ayyappa Temple was after all not a surprise. That the massive protests, mainly by women, may have settled the issue for the time being is beside the point.

The rise of jihadi and extremist elements in Tamil Nadu has not truly attracted the media scrutiny it deserves.  For many years now, the security establishment both at the center and state have been aware of the presence of extremist’s cells all over the state. 

From radical Muslim groups to groups owing allegiance to the banned LTTE, the state is witness to a wide spectrum of terror groups that are openly espousing their poisonous ideologies. That elements from Tamil Nadu had a link to the Easter bombings in Sri Lanka is no surprise. The political ecosystem that evolved over the decades in Tamil Nadu is probably responsible for the birth, growth and sustenance of these anti-national groups.

 For too long the major political parties of the state – the AIADMK and the DMK have openly supported these groups in return for electoral gains. Even during the 2019 general elections, many politicians were seen sharing the stage at political rallies with these groups.

The state governments in these states seem to be either inept or unwilling to enforce the law. Hence all eyes are on the Central government to restore order.  PM Modi, as would be expected, appears to be fully aware of the grave internal security situation.

In this context the appointment of Amit Shah as the union home minister is seen as the right man for the right job. Given his no-nonsense attitude, pundits expect him to clean up the mess with an iron hand before it is too late.

That these three states will be closely watched by Amit Shahs is a given.  One option that will definitely not be on the table is the dismissal of the state governments in West Bengal and Kerala under section 356 of the Indian constitution. The unintended consequence would be a sympathy wave in favor of the dismissed governments.

A wholescale scrutiny and review of center – state relationship as well as reforming the civil and police machinery will be an urgent task. Senior retired civil servants have revealed in private discussions that Modi has already prepared a masterplan for a largescale revamp of the ‘steel-frame’ and civilian administrative structure. These retired bureaucrats believe Modi was waiting for his return to office to execute on the plan. Given Modi’s penchant for working on a strictly ‘need-to-know’ basis, his team is expected to swiftly implement many of the recommended reforms without any publicity.

There is an urgent need to tone up the internal security of the country, particularly in these three states. The bridge to violence and extremism and hence chaos is not far away and the central government must step in quickly.

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Posted by on June 12, 2019 in Uncategorized


Government of India VS RBI

Government of India VS RBI

As a former officer of the Reserve Bank of India, I was shocked to read the recent remarks of Viral Acharya, Deputy Governor of the Reserve Bank of India. There are probably no parallels or precedents to such public remarks that tantamount to threatening the government of India by a ranking leader of the Bank.

The RBI, India’s Central Bank is a venerable institution that effuses dignity and reverence in the world of banking and finance, not only in India, but the world over. Its rather quaintly abstruse and almost self-effacing communication style – be it in its official communiqués or while interacting with the public at large – speaks of its tradition and élan that is generally matchless. This quiet dignity actually conveys so much more than what it actually says and adds an aura of enigma to it. For example, even a passing nod from the RBI Governor at a meeting of CEOs of banks can set tongues wagging.

Like most other Central banks, its presence is felt, rather than heard. Insiders are aware that RBI’s reticence and an unwillingness to hog the spotlight is also a calculated strategy to create space for itself.  It provides enough room to maneuver, change course if needed, and fight its battle with the government quietly and behind closed doors. That has only earned it respect and reverence.

Given this grand setting, it was upsetting to read the speech of Viral Acharya. It is very amateurish indeed and only betrays a lack of experience in a managing a large banking bureaucracy. He is certainly oblivious of the ethos and dignified traditions of a great institution that he represents. That the Deputy Governor chose to attack the central government in a public lecture has not only raised eyebrows, but also raised questions of why the government has not acted on this. His continuing in office has become untenable.





The recently concluded 25th Commonwealth Heads of Government Meeting (CHOGM) summit in London saw the participation of fifty three countries. Of these, only two countries (Rwanda and Mozambique) do not have a colonial past or a constitutional link to Britain. All Commonwealth members avow the leadership of the British royals. This biennial gathering of leaders from round the world is indeed a grand show of pomp and splendor.

This year’s Commonwealth Summit has been billed as a grand opportunity for India not only to showcase its growing economy but also project its leadership in an emerging new world order. It has been further argued that it provides a unique platform of influence for India where China is conspicuously absent. No wonder, Prince Charles air dashed to New Delhi on a charm offensive to invite Prime Minister Modi in person to attend the Summit.

But there is more than meets the eye. Many see the Commonwealth as a vestige of the past, conceived by Britain to arrest its declining influence in the world. Despite its large membership, it continues to be high on optics and low on influence as it struggles to find relevance in an ever changing world order.

India’s relationship with this body can best be described as lukewarm. From India’s perspective, despite being home to over 50% of the population of the Commonwealth and with the second largest economy, next only to the UK, it has never enjoyed pride of place. That the Prime Minister Modi decided to even attend the CHOGM 2018 Summit came as a surprise to many, given that he had declined to attend the previous Summit.

Large sections of Indians, given its track record, are not exactly enamored by the Commonwealth and even view it with suspicious. For instance the Commonwealth provides that no bilateral or internal issues should be raised by members in its meetings. Despite this, Pakistan has been allowed to raise the Kashmir issue on multiple occasions, angering the Indian establishment.

Secondly, the UK’s anti-India stance as seen from its support of Pakistan in its wars against India has not endeared itself to Indians. Its support of Pakistan during the 1965 and 1971 conflicts are well documented. In peace time too, for example during the cold war era, it worked against India’s interest. In the eighties, it had actively supported Kashmiri separatists and refused to crackdown and deport them despite official requests from India.

So the average Indian cannot be faulted for a lack of interest in the Commonwealth or its affairs. Despite the slick campaign to project the CHOGM 2018 Summit as an economic and leadership opportunity for India, the disinterest is obvious.

The Commonwealth’s claim of providing economic opportunity for India is doubtful. This is because it is difficult to ascertain how much of India’s trade with fellow members came from bilateral dealings or directly as a result of the membership. Also there is no exclusivity clause that binds members to trade with fellow members. India’s policy makers are acutely aware that with or without the Commonwealth, its growth trajectory will stay its course for many years to come.

But what could be the reason for this desperation in rejuvenating a moribund organization? The truth probably lies in the sinking economic fortunes of Britain itself. That the UK economy is in the pits is by no means a secret.

Firstly, Britain is having major economic upheavals on the domestic front amidst an unfriendly European Union following Brexit. According to UK’s Office for National Statistics (ONS), its economy grew slower than expected. Its annual GDP growth for 2017 was put at 1.7%.  Secondly, UK’s Office for Budget responsibility (OBR) forecasts that its economy is expected to see an average growth of 1.4% over the next five years. This is indeed bad news for the Brits.

According to an analysis (The Guardian ,Feb 22nd 2018), the British economy continues to show fresh signs of deterioration. It has been pointed out that economic activity in multiple sectors have lost “momentum”. The alarming rise in unemployment, low wage growth and weak consumer spending are now part of Britain’s new normal.

The only saving grace, according to the UK’s National Institute of Economic and Social Research (NIESR), was a robust global economy which helped its exports, thanks to a weaker Pound. Post BREXIT, Britain is seeking new economic pastures to revive its economy. It is common knowledge that many developed countries are courting India to kick start their own economies. Thus it is no surprise that the Brits went all out to woo India.

As far as Modi’s trip to London was concerned, the CHOGM 2018 Summit itself did not make much of an impact or news in India. The strong anti-British sentiments in India – largely due to the colonial rule as well as UK’s long anti-India stance after 1947 – provides a powerful overhang that will not be easy to dissipate.

What really captured the minds of Indians was Modi’s meeting with the diaspora at an event of invited guests at the Central Hall, Westminster. Although attended by smaller audience, the event was telecast live around the world and as expected had a huge viewership. Modi smartly used the opportunity to convey what many believe is the clarion call for the 2019 general elections in India. This dominated his London trip, rather than the meetings with heads of fifty three governments from around the world.

The Commonwealth’s impact in providing tangible benefits to the member nations is debatable. The benefits, if any, are skewed unduly in favor of the UK. This is an unsustainable model in today’s world where China and India are fast emerging as economic power houses. Britain has pumped tons of good money in keeping alive an organization that is long past its shelf life. With a failing economy, Britain too may quietly bid goodbye to an institution that stood as a grand testimony to a bygone era. That being said, the Commonwealth, despite bold statements to the contrary, is probably in its last innings.


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Posted by on May 3, 2018 in #Brexit, India, Modi, Uncategorized


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